Homework Answers
Corporate bond must yield municipal bond yield/(1-tax
rate)=4.30%/(1-32%)=6.32%
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(7-10) You pay a 32% marginal tax rate. You are considering investing in one of two...
You live in a country with a flat tax rate of 30% on all income, except for certain classes of tax-free municipal bonds....
You live in a country with a flat tax rate of 30% on all income, except for certain classes of tax-free municipal bonds. You are considering investing in two bonds that are equally risky in every respect except for their tax treatment. The present yield-to-maturity on the taxable corporate bond is 4.36%. Estimate what must be the equilibrium yield-to-maturity on the corresponding tax-free municipal bond so that will bear the same after-tax return? (The answer is a percent, round your...
You live in a country with a flat tax rate of 30% on all income, except for certain classes of tax-free municipal bonds....
You live in a country with a flat tax rate of 30% on all income, except for certain classes of tax-free municipal bonds. You are considering investing in two bonds that are equally risky in every respect except for their tax treatment. The present yield-to-maturity on the taxable corporate bond is 4.36%. Estimate what must be the equilibrium yield-to-maturity on the corresponding tax-free municipal bond so that will bear the same after-tax return? (The answer is a percent, round your...
You live in a country with a flat tax rate of 30% on all income, except for certain classes of tax-free municipal bonds....
You live in a country with a flat tax rate of 30% on all income, except for certain classes of tax-free municipal bonds. You are considering investing in two bonds that are equally risky in every respect except for their tax treatment. The present yield-to-maturity on the taxable corporate bond is 4.36%. Estimate what must be the equilibrium yield-to-maturity on the corresponding tax-free municipal bond so that will bear the same after-tax return? (The answer is a percent, round your...
25. Your client's federal marginal income tax rate is 35%, and his state marginal income tax...
25. Your client's federal marginal income tax rate is 35%, and his state marginal income tax rate is 5%. He is considering investing in a municipal bond issued by his local municipality that will yield him 6%. Calculate the taxable equivalent yield of this bond. A. 3.60% B. 8.40% C. 9.23% D. 10.00%
c. A corporate bond’s yield to maturity is 6%. An investor with a marginal tax rate...
c. A corporate bond’s yield to maturity is 6%. An investor with a marginal tax rate of 34% is considering whether to invest in this or a municipal bond with a yield of 4%. Which of these would you advice him to choose and why?
You are an investor in the 34% marginal tax bracket. You are looking to invest some...
You are an investor in the 34% marginal tax bracket. You are looking to invest some of your funds in a fixed income security. You see a Mecklenburg County municipal bond with a yield of 2.75%. The other bond you are considering is a Ford Motor Company corporate bond yielding 4.00%. On the basis of taxable equivalent yield, which bond would you choose? Answers: A. The municipal bond because its after-tax yield is higher B. The municipal bond because its...
2. Bond Investment Recommendation (6 pts.) Suppose that you are a financial advisor to two individuals...
2. Bond Investment Recommendation (6 pts.) Suppose that you are a financial advisor to two individuals who are considering investing in either a taxable Corporate Bond with an interest rate of 7.25%, or a federal tax-exempt Municipal Bond with a rate of 5.12%. Assume that both bonds have the same default risk and that, given their respective levels of income, one of the investors, Ms. Benson, is subject to a marginal income tax rate of 39%, while the other investor,...
Dennis is currently considering investing in municipal bonds that earn 7.80 percent interest, or in taxable...
Dennis is currently considering investing in municipal bonds that earn 7.80 percent interest, or in taxable bonds issued by the Coca-Cola Company that pay 10.40 percent. a. If Dennis’s tax rate is 22 percent, which bond should he choose? Municipal bonds Taxable bonds b. Which bond should he choose if his tax rate is 32 percent? Municipal bonds Taxable bonds c. At what tax rate would he be indifferent between the bonds? Tax rate: d. What strategy is this...
Dennis is currently considering investing in municipal bonds that earn 7.05 percent interest, or in taxable...
Dennis is currently considering investing in municipal bonds that earn 7.05 percent interest, or in taxable bonds issued by the Coca-Cola Company that pay 9.40 percent. a. If Dennis's tax rate is 22 percent, which bond should he choose? O Municipal bonds Taxable bonds b. Which bond should he choose if his tax rate is 32 percent? O Municipal bonds Taxable bonds c. At what tax rate would he be indifferent between the bonds? Tax rate % d. What strategy...
You are an investor in the 37% marginal tax bracket. You are looking to invest some...
You are an investor in the 37% marginal tax bracket. You are looking to invest some of your funds in a fixed income security. You see a Mecklenburg County municipal bond with a yield of 2.75%. The other bond you are considering is a corporate bond of equivalent credit yielding 4.50%. On the basis of taxable equivalent yield, which bond would you choose?
25. Your client's federal marginal income tax rate is 35%, and his state marginal income tax rate is 5%. He is considering investing in a municipal bond issued by his local municipality that will yield him 6%. Calculate the taxable equivalent yield of this bond. A. 3.60% B. 8.40% C. 9.23% D. 10.00%
2. Bond Investment Recommendation (6 pts.) Suppose that you are a financial advisor to two individuals who are considering investing in either a taxable Corporate Bond with an interest rate of 7.25%, or a federal tax-exempt Municipal Bond with a rate of 5.12%. Assume that both bonds have the same default risk and that, given their respective levels of income, one of the investors, Ms. Benson, is subject to a marginal income tax rate of 39%, while the other investor,...
Dennis is currently considering investing in municipal bonds that earn 7.05 percent interest, or in taxable bonds issued by the Coca-Cola Company that pay 9.40 percent. a. If Dennis's tax rate is 22 percent, which bond should he choose? O Municipal bonds Taxable bonds b. Which bond should he choose if his tax rate is 32 percent? O Municipal bonds Taxable bonds c. At what tax rate would he be indifferent between the bonds? Tax rate % d. What strategy...
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